Trusts as Members of NJ LLCs

HNW Business Law, NJ LLC Law

NJ LLC Law

  • This blog discusses whether a trust can be a member of a NJ LLC and addresses a few interesting questions about how a trust functions within a LLC, including the role of the trustee.

Can a Trust Be a LLC Member

The New Jersey Revised Uniform Limited Liability Company Act (NJ-RULLCA) defines a ‘member’ as a person that has become a member of an LLC.  That’s not much help, is it? The Act defines a ‘person’ to include a trust. Therefore, a trust is eligible to become a member of an LLC.

While a trust can be a member of an LLC, the trust itself technically does not own the membership interest in the LLC. Rather, the trustee of the trust holds title in his or her capacity as trustee. The New Jersey Uniform Trust Code explicitly provides that a trustee holds title to all trust property (such as a membership interest) in his or her name as trustee of the trust, (see N.J.S.A. 3B:31-18(a)&(b).

Here’s an example.  Say a trust owns the Next Big Idea Trust.  The LLC creates an operating agreement between all its members.  To record the trust’s membership in the LLC, the LLC’s records must list the Trustee of the Next Big Idea Trust dated June 16, 1876″ or “Fredrick P. Niemann, Trustee of the Next Big Idea Trust under Agreement dated June 16, 1876.”

Conclusion

The above analysis can be summarized in the following table:

If, as to the Settlor of the Trust And, as to the Trust And, as to the Trustee The Result as to the Member is
Settlor lives Trust continues Trustee dies Successor trustee holds title
Settlor dies Trust continues Trustee lives Trustee still holds title
Settlor dies Trust continues Trustee dies Successor trustee holds title
Settlor dies Trust terminates and distributes assets to beneficiary Trustee lives None; beneficiary is mere transferee
Settlor dies Trust terminates and

distributes assets to

beneficiary

Trustee dies None; beneficiary is mere transferee

To discuss your NJ LLC or Trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ LLC Law Attorney

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